Tabell’s Market Letter – July 08, 1983

Tabell’s Market Letter – July 08, 1983

Tabell's Market Letter - July 08, 1983
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TABELL'S MARKET LETTER 909 STATE ROAC, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE. INC. MEMBER AMERICAN STOCK EXCHANGE July 8, 1983 The artisan's tools are determined, to a great extent, by the environment in which he is operat- -ing .An,.-ax…is…an.Jnappropriate ,tool.forasurgeon, as.isar.foraJumber;jack,,Tllisreflectionis prompted by -what we see as -a major difficulty in forecasting the current 'stocK market. -Uncertainty as to the nature of the basic market environment makes the choice of forecasting tools hazardous at best. During our own investment career, we have observed two separate and distinct long-range market environments. The first of these began around the end of the Second World War and came to an end sometime In the middle 1960's. The second took over at that point, and (we think) will come to be knOMl as having ended during a period centered on the watershed date of August 12, 1982. (A third, and still different, market environment prevailed during the 1930's, but that will not be the subject of dis- cussion here.) The two environments which we have experienced at first hand had certain similarities. Both – were characterized by major bull and bear-market cycles, and both retained the familiar, approximately four-year periodicity of these cycles, which has been traced back to the 18th century. At that point, however, the similarity ceases. The 1950's and 1960's were characterized by significantly higher peaks and valleys attained for each successive cycle. Moreover, the cycles tended to spend most of their life- time in an advancmlr phase followed by short, sharp bear markets. Furthermore, corrections during th, upward phase of each market cycle, in the early stages at least, tended to be relatively small and insig- nificant. We cited in a recent letter the eight-year period between 1949 and 1957 when no correction ever exceeded 13. The middle 1960's to date, of course, have featured cycles in which the peaks and valleys were at approximately the same level. The individual cycles spent more of their length in a declining phase, and corrections within advancing phases tended to be frequent and often deep. Our readers will recall our thesis that the recent advance to the mid-1200's on the Dow is totally inconsistent with that sort of 9llvironment, and our resultant conclusion that the basic stock-market background for the 1980's — and probably the 1990's — will be quite different from that of the late 1960's and 1970's. I-I—–'-hetrouble-is-,—f-cour-Be,—that-,less-than….year…mt-'-Priod—probably-to be measul'ed-in-dee——I—I ades ,-we have only the fuzziest sort of idea of what this new era will be like. It will presumably possess more of an upward bias, cycle-to-cycle, than did the one just ended, -and we recently have been citing the 1950's as an example of what can happen In the framework of a market with a basic upward biss., There is, however, no resson to assume that that bias (which in the 1950's constituted a secular uptrend 'at around a 9 annual rate) will be duplicated In the years to come. The upward bias could be less thart that bf the 1950's or, indeed, greater. There is no way of guessing based on the evidence now availabl4. , There is, likewise, no way,of knowing how long the cycles of the new environment will tend to spend in their advancing phase or-the general nature of bull-market corrections. The first bull market of the new environment has seen precious little in the way of corrections so far, but this is limited ex- perience on which to base a judgment. Now all of this long-term theorizing, it seems to us, is not irrelevant to the problems of near-ter forecasting. It is an incontrovertable fa9t, for example, thst many technical forecasting tools (Member Shorr Sales are as good an exmnp!eli any)' are suggesting the imminence of a correction of some signifi- ,cance. The problem is that the accuraCy of many of these tools is predicated on the experience of the 1960's and 1970's. Whether they will prove equally accurate in the future is, at least, open -to doutit. Indeed, many of the finely honed tools of the last decade have been suggesting corrections at various 'points during the last 11 months, corrections which, as we know, have failed to materialize. The same principle applies to determining what external factors are most likely to be the cause of short-term market movements. Just this week, for example, we have witnessed price weakness engend- ered by forecasts of higher Interest rates. In this area, st least, the market seems to remain sensitive to the same sorts of stimuli that moved it in the 1970's. We are not sure, however, how long this will continue- to be the case. The background interest-rate picture is, st this time, Significantly different – than it was, say, a decade ago. It would therefore not be surprising to see the stock market begin to 'develop the ability to ignore minor blips in money rates. ..- It is for this reason that we hsve chosen — so far at least — to retain a relatively sanguine attitude toward the loss of momentum which has taken place since early May. Further deterioration (in- cluding as we suggested last week a decisive bresk through the 1l85' level) would drag us Into the camp 'of thOle who are concerned about Significant action on the downside. For the time being, however, we tend to retain a healthy skepticism about the use of the lsst decade's tools in what seems obviously a very different sort of market. AWTrs ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL ,Dow-Jones Industrials (1200 p.m.) 1209.44 'S P Composite (1200 p.m.) 167.66 Cumulstive Index (7/7/83) 2007.93 No statement or expreulon of opinion or any other motlC!r herein contained IS, ar 15 10 be deemed to be, directly ar ondlfeclly, on affer ar the SalKltolion of on offer to. buy or sell ony security referred to ar mentioned The mailer IS presented merely for the convenience af the subscriber While '/Ole believe the sources ef eur information to. be reHoble, we In no way represent ar guarantee the accuracy Ihereof nor of the statements mude herein Any oelion 10 be taen by Ihe SUbscflber should be based en hiS awn investlgallon and Infermotlon Janney Menlgomery 50.11, Inc, as a carperatlon, and lis officers or employees, may now have, Of may laler toke, pellhons or trades In respect to any sectJfllles menlloned In Ihls or any future Issue, and such pOSlllon ITI(lY be different from any views now or hereafter expressed In thiS or any other ISsue Jonney Montgamery Scolt, Inc, which 1 registered With the SEC as on inJcstment advlsar, may give adVice 10 Its Investment advlsary and othel customers Independently af any statements mode In Ihls or In any other Issue Further information on any security mentioned herein IS avodoble on request

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